Banks beware — you may think you are doing something nice for a consumer when you re-open a closed account so that a deposit or withdrawal can be made and save the consumer from potential issues, but you are likely breaking the law, the Consumer Financial Protection Bureau warned yesterday in a newly published circular.
When consumers close accounts, they are to remain closed, the CFPB advised, unless the consumer wishes to re-open it. There are cases where financial institutions have unilaterally re-opened accounts if it receives a transaction, such as a debit or deposit, to the account. But the process of re-opening accounts could lead consumers to incur fees for not having sufficient funds in their account or fees for having the account re-opened, even if consumers were not given the choice of whether they wanted it done or not. Unilaterally re-opening accounts can constitute an unfair practice under the Consumer Financial Protection Act, the CFPB warned, pointing to an enforcement action with USAA Federal Savings Bank that cost the institution $15 million. The bank was accused of reopening previously closed accounts without getting authorization from the consumers to do so.
“When a bank unilaterally chooses to open an account in someone’s name after they have already closed it, this is a fake account,” said CFPB Director Rohit Chopra in a statement. “The CFPB is acting on all fronts to halt the harvesting of illegal junk fees.”
In the event a transaction is made on a closed account, institutions would be better off declining the transaction instead of re-opening the account and processing it, the CFPB said. And having transactions declined may even help the consumer by making him or her aware that new account information need to be provided to whomever is attempting to process the transaction. “Reopening a closed account does not appear to provide any meaningful benefits to consumers or competition,” the CFPB said in the circular. “While consumers might potentially benefit in some instances where their accounts are reopened to receive deposits, which then become available to them, that benefit does not outweigh the injuries that can be caused by unilateral account reopening.”
